Posts Tagged ‘Relief’

HARP – HAMP – HAFA etc

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For borrowers unable to afford their mortgage payment, listed below are the options you will need to consider in the following order… HARP is always your 1st Option

1.) HARP (Home Affordable Refinance Program) this allows you to convert to a low 30Y Fixed. You must have a Fannie or Freddie loan with good credit and be current on your payments.

2.) HAMP (Home Affordable Modification Program) this is where most of the borrowers will be; however not everyone will qualify. You will need to have a financial hardship and there are front and back end financial conditions that need to be met.

3.) HAFA (Home Affordable Foreclosure Alternative) If you were denied a loan modification and unable to afford your mortgage payments, then you may want to consider selling your property at a loss (Short Sale). Your lender would first need to agree to the short sale and the credit impact will be two years and is less damaging then a foreclosure.

4.) Deed in Lieu (DIL). This is where you give the property back to the lender by signing a Deed-in-Lieu of Foreclosure. This also avoids a Foreclosure. DIL is not possible if you have more than one loan i.e. 2nd mortgage or Home Equity Line of Credit as these stay in force and the 1st mortgage holder would have to accept responsibility for them.

5.) Foreclosure. People with excellent credit are now foreclosing on their properties by walking away from it. They believe the property will not go up in value and have suffered a substantial loss from it. Consequences apply as this will stay on your credit report for 7 years.

6.) Bankruptcy. Regardless if it’s a Chapter 7 or 13, it will stay on your credit report for 10 years.
With the new Bankruptcy ACT of 2005 it is now more difficult to file for Chapter 7 and most likely you will need to file a 13, which still requires you to pay back your debts.

Reality vs. Partisan Pundits. No Contest

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The Administrations well meant efforts to make it possible for many homeowners to avoid foreclosure has stirred up a hornet’s nest among some media commentators.

The Plan described at http://www.makinghomeaffordable.gov/ uses up to $75 billion to provide incentives to holders of FANIE MAE and FREDDY MAC loans to work with Borrowers to refinance, or modify existing problem loans, rather than simply go ahead and foreclose.

This is a classic version of the glass ½ full, or ½ empty. Typically, in our current exclusively partisan media, the answer is dictated solely by political affiliation regardless of the facts.

This is unfortunate because there are legitimate reasons for supporting, opposing, or, better still, improving the current process.

One the one hand it is a legitimate effort to try to help Joe Public get through a situation brought about by failures in our economic systems. Given the Trillions of dollars being ploughed back to the very people who caused this situation, the $75 Billion allocated to this program is peanuts.

On the other hand there is a valid argument to be made that subsidizing refinances, or modifying problem loans, is simply putting off an inevitable final default. This can often hurt the very people it purports to help by having them use up scarce funds in a doomed attempt to save an impossible situation, rather than simply give the property back to the Lender and getting  on with life.

The December report on the status of this program provides ample ammunition for both schools of thought, and the regulators have shifted emphasis to try to deal with the problems showing up.

The summary shows that 728,000 loan modifications are already in the required trial phase. Unfortunately only 31,382 have completed that phase and have become permanent, saving homeowners an average of $550 per month. The low rate at which Trials become Permanent  is a serious problem raising concerns that a significant number of these modifications are simply allowing the Banks to delay acknowledging the number of bad loans on their books and to avoid taking the losses on to their Balance Sheets.

If that is true then the inevitable result will be a longer period of foreclosed properties coming to market as these failed modifications fall apart.

As with most things there is not a simple answer, but on balance I come down on the side of giving the program a fair shot. This is based mostly on my view that given the countless billions we have poured into supporting the financial institutions that caused the problems,  a little effort to give similar assistance to the victims is not unreasonable.

Praise Where It’s Due

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A small but very welcome glow of sanity from a historically well run Bank.

After acquiring $117.3 billion dollars worth of option adjustable rate mortgages (ARMs) in its acquisition of Wachovia last year, banking giant Wells Fargo is now practicing a rare but effective loan modification strategy: the cramdown.

Through September of this year, Wells Fargo has forgiven an average of $46,000 on approximately 43,500 high-risk loans in its portfolio. The typical debt reduction is around 20% of the loan principal, though in rare cases Wells Fargo has cut as much as 30%. Reports put the six-month default rate of loans modified by Wells Fargo at 15-20%, less than half the current rate of 40% suffered by the rest of industry’s extend-and-pretend modifications.

Debt reduction is only one of many tools Wells Fargo is using to aid its distressed borrowers, and is currently not being used as a blanket fix for all underwater homeowners.

My Opinion: While this is a national story and certainly only a very small slice of the current problem pie, a mortgage lender taking into account the need for principal reduction is a big acknowledgement that the underwater state of many homeowners’ mortgages require this type of treatment. This is something other lenders and Congress need to understand when considering the mortgage quandary. Continuing to “kick the can down the road” with “extend and pretend” modifications will do nothing to solve the massive negative equity problem. The fact that the small glimmers of hope — in the form of cramdowns — are coming from a lender and not the regulators really speaks to the hands-tied, head-buried-in-the-sand mentality which must be overcome if we are to move ahead with a recovery.

Re: Wells Fargo Cuts as Much as 30 Percent in Principal from the Wall Street Journal

Major Help From The IRS

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This is a great example of intelligent action by a government agency not know for it’s compassionate nature.

Also evidence of the benefits of being a Realtor and having the support of the California Association of Realtors.

IRS TO EXPEDITE TAX LIEN RELIEF FOR HOMEOWNERS
The Internal Revenue Service (IRS) recently announced it will expedite its process of providing relief from federal tax liens for distressed homeowners. With over one million current federal tax liens against real and personal property, the IRS announcement should help REALTORS® and their clients resolve federal tax lien issues in their sale and loan transactions.

As background, a homeowner seeking to sell or refinance a property must generally pay off an existing federal tax lien. However, during the current economic downturn, many homeowners don’t have the cash or equity to do so. Hence, for a refinance, the homeowner may request that the IRS makes its tax lien subordinate or secondary to the lien of the refinancing lender. For a sale, the homeowner may, under certain circumstances, request that the IRS discharge its claim. The IRS’s processing time for subordination or discharge requests has been about 30 days. The IRS is currently working to expedite that time frame to help distressed homeowners. For IRS instructions on requesting relief from federal tax liens, go to the IRS Publication 783 for discharges and Publication 784 for subordinations at www.irs.gov.

C.A.R. provides REALTORS® with many legal articles covering a wide range of topics of interest. Some of the new or newly revised legal articles available at http://qa.car.org are as follows